COVID-19 is a watershed moment for government involvement in the economy

The RBNZ released a report estimating the economic impact of COVID-19 containment measures back in May. They estimate that one week of alert level four (L4) costs the economy about $2.2 billion in GDP. Stats NZ recently registered a 12.2% fall in GDP for the June quarter. Sobering stuff.  These are big, scary numbers. Scarier still for those in tourism or hospitality who are wearing a disproportionate amount of that cost. Clearly there is substantial economic suffering, but how can we think about government responses?

About the author: Byte Size Story connects everyday economic issues with the big picture. The views expressed here are the authors. If you have any questions about the post please email bytesizestory@gmail.com

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The game of mask wearing

Now that we are back to level 2 lockdown in New Zealand (apart from Auckland where it is level 3) the issue of “should we wear a mask” has cropped up.

A lot of “words” have been spread across the internet on the issue, with people arguing about their effectiveness, complaining about how it hurts their “liberty and freedom”, and people saying they don’t like how it makes it harder to breath – hence why random idiots on the street feel empowered to yell at people who wear a mask, without realising that their willingness to lash out at other people makes them sound simultaneously stupid and scared.

But I digress before I’ve even gotten started – when it comes to wearing masks this tweet raises a great point:

I made a similar point when I was teaching on Thursday (having come in with a mask) – so I thought it could be fun to think about it a bit more here.

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Is it time to promote working from home?

Over the past few weeks I’ve been working mostly from home as part of the COVID lockdown.  However, now with the move back to Level One I’m heading back into the office on a more full-time basis.  

In the first few days back, I have heard a lot of people from around the building talking about how they prefer different work arrangements – and I’ve heard a lot of people say that they felt more work was being done away from the office.  And yet, teams appear to be making the choice to move back to the office.  Why is this the case?

Although it may be the case that the teams stated and real preferences differ, I suspect there is something else at play – strategic complementarity.  Once we understand this concept it can become clear why we can end up in a worse equilibrium with regards to our work arrangements even when given flexi-choice, and why explicitly promoting working from home could be a “win-win”.

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What does cash hoarding mean for the economy?

New Zealand banks noticed an increase in cash withdrawals by households since the day of lockdown announcement. Banks believe this might be due to the panic stockpiling of nervous households as was mentioned in the article.

In this post I want to discuss what drives the households to behave in this way, and how this comes into our thinking about economics and monetary policy. 

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Does monetary policy need to respond to the surge in inflation during pandemic?

Inflation went up to 2.5% in the March quarter, its highest rate since 2011. This was a fair amount above expectations, with the RBNZ expecting a 2.2% rate. They were not alone with private sector forecasters also expecting weaker inflation outcomes. 

This raised two questions from me:

  1. Is this evidence that COVID was a supply shock more than a demand shock?  
  2. And does it mean that monetary policy should respond? 

I want to think about the later point in this post – as the first question will get answered as we work through it.

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Have supermarket prices shot up? Evidence from the Stats NZ data

I have been hearing anecdotes from my friends in Europe that prices in supermarkets have increased since the last couple of months. Interested I had a look online and found a number of articles outlining this around the world.

According to the media, NZ shoppers have faced this as well. 

“Some customers have taken to social media to complain that prices of items like soap, meat and fresh veggies have increased sharply.”

However, supermarkets kept denying the fact. It’s hard to judge the case from my experience, as Matt and I were lazy and were primarily eating outside before the lockdown. However, Stats NZ provides data here – so let’s look at the latest release on the Food price index to figure out whether the customers are right.

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